Charting the RBA

The Reserve Bank of Australia (RBA) has released its monthly Chart Pack  – “a set of graphs that summarise macroeconomic and financial market trends”. Let’s have a closer look at a select few interesting and relevant charts for MacroBusiness readers.

World Economy
Its pretty simple folks – growth, whilst positive, is slowing down. This series of charts if fairly self-explanatory, but the first, showing both world GDP and our major trading partners shows a distinct deceleration:

 

The areas slowing down? Asia and emerging economies, with China attempting to pull off a soft landing, which is seems to be achieving so far:

 

Surprisngly, or perhaps not given the tremendous use of liquidity, and in the case of the US, huge deficit spending, the advanced economies are looking slightly better on a GDP basis:

 

Europe is seemingly heading for inevitable recession, whilst US growth has ticked up alongside Japan. However what remains the most important economic problem? Government Debt? No. Inflation? No. Unemployment? Yes:

 

You can also plainly see that the very tight U-3 measure for the US has improved marginally, but still at multi-decade highs around 8%. If a recovery is underway and continues at this pace it will likely be the end of the decade before unemployment, in the US at least, “recovers”. But Europe looks set to having a lost generation of youth who may not know what having a job is like – current youth unemployment is around 30-50% around the continent.

UPDATED: h/t Delusional Economics

Australian Economy

I hope new readers can understand the trend in Australian economic growth with this chart, which we’ve highlighted before on MacroBusiness as well below trend, on a per capita basis and after tremendous stimulus.

 

By the way, almost every market economist recently surveyed reckons this year and next will see GDP growth at 3% or more – iff the economy is to lift itself out of this stupor, in the “biggest boom in the century”, then you’ll need to go start spending and stop saving:

 

Are we all starting to finally see that its not the Holes, but the Houses. Here’s the latest ABS Dwelling Price Index (they’ve changed back this month to nominal prices):

This is an obvious double dip in house prices going on. Look to the left with the dip in 2008/9 – what was required to boost it back to the most recent highs? Can anyone remember?

  • 1.2 million or 5.7% increase in population
  • $270 billion increase in housing debt
  • $42 billion in government stimulus
  • 300 basis point (3%) reduction in cash rate (total 400 points peak to trough)

Think we can do this again?

Moving on,  the reason we are all “wealthy” – amongst the highest indebted countries in the world, having tripled our debt load and paying approx. 30% more on interest on the household budget than at the height of the 17% mortgage rates of the last recession:

 

 

For some reason, this chart doesn’t seem to be wildly read by consensus market economists. Interesting no?

Interest Rates, Credit and Money

With all the hoopla yesterday over the RBA’s decision to hold rates, let’s put this in context. First, the interest rates faced in US, Euro Area and Japan, zero or near enough not to matter:

 

Now in Australia, and adjusted for inflation (i.e the real rate), you can see the offical cash rate is back to near 2001 emergency levels, but not as low as 2009 levels, yet nowhere near the countries of above – is this our path?

 

 

But what matters now is not the RBA rate, but the standard variable mortgage interest rate provided by the banks. Why? More than a trillion dollars in household debt is why. As the Unconventional Economist pointed out recently, even a 25 basis point (0.25%) move in interest rates can have a dramatic effect on household sentiment.

I’ve made this chart full size for a reason (to Editor: leave alone!) – notice how the RBA has kept the official cash rate steady (red line), but the actual rates have ticked up and are at 2004 levels, when household debt was approximately half the current size:

 

 

Why is this so? To protect profits of course.

 

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Comments

    • updated, thanks – working off backup computer which had the old chart whilst I try….in vain…to load Win 7 on my new one….sigh.

    • Really have to wonder how the ECB can justify not having a ZIRP.

      When are they going to be satisfied that the ranks of the unemployed are large enough that inflation is not a risk?

  1. It’s looking rather dodgy Prince. Also for Australia, the iron ore industry are predicting about a 21% drop in prices today.

    When are equities going to correct with all this as the macro view?

  2. Apply the exponential function using
    World GDP growth @ 4%

    Doubling time = 18 years.

    Time to use same amount of resources as already used in recorded history = 18 years (assuming constant proportionality within GDP).

    If it’s only 2% real growth then its 36 years.

    In a trade based, capitalist world, it doesn’t matter that the growth is in Asia and we have stagnation, the impact on scarcity and price is the same (other than Export Land model effects).

    Read the transcript:
    http://www.albartlett.org/presentations/arithmetic_population_energy_transcript_english.html
    or see the video:
    http://www.albartlett.org/presentations/arithmetic_population_energy_video1.html

    We remain on track to hit the constraints first propounded in the Limits to Growth in mid 21st century as confirmed in a CSIRO paper within the last few years.

  3. Re Australian GDP growth being “well below trend, on a per capita basis and after tremendous stimulus.”

    You forgot to take into account/mention the dramatic fall in private sector debt and increased savings ratio and that fiscal contraction compared to the maximum stimulus has already started. Fiscal stimulus was always only a small fraction of private debt growth until 2007. Steve Keen explains all this and why traditional economists can’t see it, but then he doesn’t get MMT/R.

    The prior stimulus is almost totally irrelevant to current GDP growth (which some argue shows it was wasted, but the investment in standard of “living” for schools and through insulation and keeping employment stable was well worth it in my opinion (being a sort of social democrat! well today anyway!)

  4. “every market economist recently surveyed reckons this year ***and next*** will see GDP growth at 3% or more”

    In the biggest fiscal contraction in 50 (inexact) years?

    Are they mad? (or am I?)

    Or is it a bet Labor will relent as GDP slows?

    Or do they not understand that GDP = Private + Government + External and that the proposed fiscal contraction is as big as current GDP growth in Oz?

    Or do they think it is such a manipulation based on dodgy accounting that the underlying cash flow patterns will somehow not change enough to have impact?

    Or do they not think construction contraction in NSW & Vic will not cause uncertainty, lower employment and maintain/increase savings?

    Or is it such a resource boom that it totally outweighs and NSW Vic recession?